A story of supply and demand

Dissecting the detached category

Sales activity declines in Calgary's detached resale housing segment over the first half of 2015 resembled that posted during the global economic crisis in 2009, according to CREB®'s mid-year forecast update.

Yet experts warn aggregate prices in Calgary's largest housing segment, which have started to fall, are being skewed by higher-priced markets, which experienced a more dramatic drop during the first half of the year.

"This year, we have seen sales decline in all price ranges. However, the decline in the luxury home market has been larger compared to lower-priced homes," said Richard Cho, principal of market analysis for Canada Mortgage and Housing Corp. (CMHC).

Detached sales totaled 6,203 units, a 25 per cent decline relative to the previous year, noted CREB®.

While sales declined in every price range, the $600,000-plus market was hit the hardest. CREB® noted the gap between sales and listings in that range widened over the first six months of 2015 to 38 per cent, compared to 57 per cent in 2014.

"When comparing sales and new listings by price range, it's evident that the spread is wider in the higher price ranges, reflecting more buyers' conditions," said the forecast report.
"This situation should not come as a surprise given that most of the job losses to date occurred in the higher-paying business services sector, a trend that is likely to continue throughout the year.

In fact, most of the growth in new listings has occurred in the higher price ranges. More than 57 per cent of new detached listings were priced above $500,000 this year, compared to only 45 per cent of the sales activity in this range, noted CREB®.

The $300,000-to-$399,999 range also experienced a steep stumble to start of the year. Yet CREB® attributes that to fewer listings in that range. There was a total of 1,590 new listings in the under-$400,000 segment of the detached market and 1,297 sales.

"The relatively high absorption rate limited any significant inventory gains in this price range," said the report. "This outcome reflects the continued strong demand for lower-priced detached homes.

Cho attributes the overall decline in detached sales to a few factors, notably the economic slowdown brought on by low oil prices.

"Many energy companies have reduced their capital expenditures, limiting job creation and, in many cases, contributing to layoffs," he said. "This has not helped labour market conditions in Calgary, and we have seen the unemployment rate increase.

"Homebuyers just don't feel as confident about the market as compared with previous years, and this is holding back sales in 2015."
Not to say sales are stagnant. Nadine Gingras has lived on a quiet tree-lined street in the city's northwest for close to six years, and has been watching the market in her area with increased interest this year.

"I always have my eye on what is going on, just out of curiosity," she said. "Recently, three homes within a block radius of my home went up for sale and all of them sold within a week."

In fact, the $400,000-to-$499,999 range of the detached market represented the largest share of sales activity in the first six months of the year at 28 per cent.

Cho says the demand for housing in the $400,000-to-$499,999 price strata may reflect employment gains in lower-paying sectors such as health care, transportation and warehousing and food accommodations services.

"Lower-priced homes can often attract a wider group of people such as first-time home buyers, investors and those looking to downsize," he said.
Moving forward, CREB® anticipates detached sales to decline by 19.8 per cent to 12,105 units in 2015. Meanwhile, continued weakness in demand relative to supply levels is expected to cause prices declines in the second half of the year, however, on an annual basis prices will remain relatively stable.

"Consumers in a must-sell situation will have to carefully consider the price they are willing to accept," it said. "These decisions could place further downward pressure on aggregate prices in the second half of 2015."